Donald Trump’s pharmaceutical tariffs have upended the plans for Kenneth Moch, president of Euclidean Life Science Advisors, who is now facing roadblocks in further developing his four early-stage life science companies.
Investor skittishness is making it harder to secure venture capital funding for his “four children”—Regerna, Ternalys, M2DS, and Ekawa Therapeutics- which are developing technologies to treat and study muscle repair/ regeneration, intractable cancers, a rare pediatric neurodevelopmental disorder, and post-surgical anesthesia recovery, respectively.
“We were talking with one of the preeminent VC firms in Boston recently, who thinks our technology is very interesting, but they explicitly say they are reevaluating their portfolio strategy in the current changes in the marketplace, ” he said.
Pharmaceutical companies of all types are already reeling back from Trump’s decisions to double tariffs on Chinese imports from 10% to 20% in February— and the uncertainty created by looming threats to impose reciprocal tariffs.
Tariffs aren’t the sole cause of financial uncertainty stemming from Trump. The government’s efforts to cut spending on “waste” by diminishing NIH federal grant cuts has been creating instability for biotechnology investors.
Still, the tariffs seem to be among the changes influencing the financial markets the most, according to Moch. “This is a bigger change than we’ve ever seen in the business environment,” he said.
The White House, which linked imposing tariffs on China with curbing the fentanyl crisis, has also said that the pharmaceutical tariffs will create U.S. manufacturing jobs while encouraging drug companies to onshore. While large pharmaceutical companies are more likely to have the capital and resources to absorb tariffs or move their facilities to the United States, smaller generic companies and early-stage ventures may lose funding and face decisions about exiting the market because of the tariffs.
Large drug manufacturers, which have patent protection and therefore pricing power, have already made onshoring announcements, enabled by large capital, margins, and political incentives that generic manufacturers don’t have– like Medicare drug negotiation, the 340B program, and tackling middlemen or pharmacy benefit managers, according to PhRMA, the trade group representing branded drug companies.
For instance, Eli Lilly, a company that generated $45 billion in revenue last year, said that it plans to invest $27 billion in U.S. manufacturing, doubling its total investment since 2020. LGA Pharma announced an investment of over $6 million to expand its Rosenberg, Texas manufacturing facility. Similarly, Merck opened a $1 billion facility dedicated to vaccine manufacturing in North Carolina, while Pfizer’s CEO Albert Bourla said that his company will shift manufacturing to the U.S. if deemed necessary.
“Our confidence positions us to help reinvigorate domestic manufacturing, which will benefit hard-working American families and increase exports of medicines made in the U.S.A.,” said David A. Ricks, Lilly chair and CEO in a press release.
Behemoth drug manufacturers generally produce their drugs in Europe and the United States, while generics are primarily produced in countries like China and India. Generics represent 92% of U.S. retail and mail pharmacy prescriptions, but only 18% of overall pharmaceutical spending. Companies that manufacture these drugs are constantly in a cycle of competition and driving the lowest possible cost– which is why experts think their probability for onshoring is much more slim.
“If you look at the generic manufacturers and how much money they’re currently making, I don’t even know where the capital would come from, or who would be willing to give them the capital to make these kinds of investments. Their margins are so thin, it’s not a good business to be in,” said Marta Wosinska, senior fellow at the Center on Health Policy at Brookings Institute.
Because of the high fixed costs of investing in the US, the government supplying generics companies with grants and loans to build infrastructure in the United States would level the playing field, according to Wosinska.
Generics companies that receive federal funding are few and far between. However, one generics company called Phlow Corporation actually receives funding from the federal government to invest in making APIs for essential medicines in the United States.
“They’re a brand new company that intends to use advanced manufacturing to produce critical products for the US marketplace. But even they have taken two and a half to three years to build the plant and get it qualified,” said Dennis Hall, Vice President of Advanced Manufacturing Technology at U.S. Pharmacopeia.
Without these investments, generics companies might face increased drug shortages, the effects of which will trickle down to patients. “Some manufacturers might decide that they want to exit the market because they can’t absorb the tariffs and they’re just not making any money, ” said Wosinska.
The process for moving manufacturing facilities to the United States could take years, another reason why pharmaceutical companies might rule out onshoring, according to Hall. However, leveraging advanced manufacturing technology with production in the US – which uses a smaller carbon footprint, less waste, and less labor to run the system– is a way to offset the cost, he said.
“You’re essentially halving the cost of the facility. There’s another 35-45% reduction associated with labor, and another 25% reduction associated with waste and power…raw materials is the one constant that advanced manufacturing technologies doesn’t really address,” he said.
But Wosinska said that for generics, these technologies are expensive to adapt and companies need to think about whether moving their production away from China would be enough to cover the cost of investing in the technology. Meanwhile, for large manufacturers who get their product from Europe, the cost may not be dramatically different enough to invest in advanced manufacturing.
Funding prospects in the face of tariffs will impact each of Moch’s companies differently, as he said they each have different timelines and risk profiles. For two of his companies, particularly the one that focuses on muscle repair and regeneration, and the other on anesthesia recovery, he said that he may be able to get government funding from the Department of Defense because “there’s a logic that makes sense for military applications.”
However, when it comes to technology focused on rare pediatric neurodevelopmental disorders, he said the initial funding is especially challenging because “you have to prove some basic science,” and it would likely fall on the families of affected children to shoulder the initial funding.
As for his company focused on overcoming cancer resistance, he explained that it combines two highly complex technologies in microRNA delivery and glioblastoma treatment–ventures that haven’t succeeded in the past. For investors, he said, “a negative and a negative scares people off.”
“If the companies I started don’t get funding, no one’s ever going to know what would have saved them, right? There’s no parallel universe. What’s the impact on the entire system? It’s that things will never happen—that would have happened— had the system not been jiggered with,” he said.
